Whether TCS shall be collected from Non-resident buyers of foreign tour packages under Section 206C(1G) of the Income Tax Act 1961
Tax Collection at Source (TCS) has been a point of discussion, especially when it comes to foreign nationals or non-resident individuals purchasing tour packages in India. This article delves into whether TCS should be collected from non-resident buyers under Section 206C(1G) of the Income Tax Act, 1961.
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Background:
As per Section 206C(1G) of the Income Tax Act, 1961, a person selling overseas tour packages is liable to collect tax at the rate of 5% from the buyer of such tour packages. However, if the amount of a tour package or aggregate amounts of tour packages received from the buyer exceeds seven lakh rupees in a financial year, the rate of TCS shall be 20% instead of 5%.
Exemptions:
TCS shall not be collected from the following buyers:
- the Central Government,
- a State Government,
- an embassy,
- a High Commission,
- a legation,
- a commission,
- a consulate,
- the trade representation of a foreign State,
- a local authority or
- any other person (notified by the Central Government)
Issue:
Let’s take a hypothetical case scenario for better understanding of the problem:
Consider George, a foreign national visiting India, who purchases a tour package for a foreign destination. The tour operator insists on collecting TCS, as there is no mention of exemptions for non-resident buyers.
This results in an unnecessary cost for such buyers, as they might not be in a position to get credit for the taxes collected from them in India. This creates genuine hardship for non-resident individuals.
Solution:
The Central Board of Direct Taxes (CBDT) vide Notification No. 20/2022 – Income Tax | Dated:- 30th March, 2022 , clarified that the provisions of Section 206C(1G) shall not apply to an individual who is not a resident in India in terms of clause (1) and clause (1A) of Section 6 of the Act, and who is visiting India.
The relevant extract of the Section is reproduced hereunder:
“(1G) Every person,—
(a) being an authorised dealer, who receives an amount, for remittance from a buyer, being a person remitting such amount under the Liberalised Remittance Scheme of the Reserve Bank of India;
(b) being a seller of an overseas tour program package, who receives any amount from a buyer, being the person who purchases such package,
shall, at the time of debiting the amount payable by the buyer or at the time of receipt of such amount from the said buyer, by any mode, whichever is earlier, collect from the buyer, a sum equal to five per cent of such amount as income-tax:
Provided that the authorised dealer shall not collect the sum, if the amount or aggregate of the amounts being remitted by a buyer is less than seven lakh rupees in a financial year:
Provided further that the sum to be collected by an authorised dealer from the buyer shall be equal to twenty per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, where the amount being remitted is for purposes other than education or medical treatment:
Provided also that the authorised dealer shall collect a sum equal to one half per cent of the amount or aggregate of the amounts in excess of seven lakh rupees remitted by the buyer in a financial year, if the amount being remitted out is a loan obtained from any financial institution as defined in section 80E, for the purpose of pursuing any education:
Provided also that the seller of an overseas tour programme package shall collect a sum of twenty per cent of the amount or aggregate of amounts in excess of seven lakh rupees received from the buyer in a financial year:
Provided also that the authorised dealer shall not collect the sum on an amount in respect of which the sum has been collected by the seller:
Provided also that the provisions of this sub-section shall not apply, if the buyer is,—
(i) liable to deduct tax at source under any other provision of this Act and has deducted such amount;
(ii) the Central Government, a State Government, an embassy, a High Commission, a legation, a commission, a consulate, the trade representation of a foreign State, a local authority as defined in the Explanation to clause (20) of section 10 or any other person as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein:
Provided also that the sum to be collected under this sub-section on or after the 1st day of July, 2023 and before the 1st day of October, 2023, shall be collected in accordance with the provisions of this sub-section as they stood on the 1st day of April, 2023.
Explanation.—For the purposes of this sub-section,—
(i) “authorised dealer” means a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of the Foreign Exchange Management Act, 1999 (42 of 1999) to deal in foreign exchange or foreign security;
(ii) “overseas tour programme package” means any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.”
Conclusion:
The clarification by CBDT is a welcome relief for non-resident individuals visiting India. By exempting them from the TCS provisions under Section 206C(1G), unnecessary financial burden is alleviated, promoting a more tourist-friendly environment.
Disclaimer: The views expressed in this article is personal and should not be construed as legal advice. You may consult with your consultants/ tax advisors for detailed guidance.
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